Massachusetts regulator Galvin investigating Schorsch B-D

William Galvin, secretary of the Commonwealth of Massachusetts, has launched an investigation into Realty Capital Securities, the wholesaling broker-dealer arm of Nicholas Schorsch’s nontraded real estate trust empire.
Mr. Galvin’s office, which includes the Massachusetts securities division, is looking into the firm and how it has sold nontraded REITs, said spokesman Brian McNiff.
Based in Boston, Realty Capital Securities is the wholesaling arm of RCS Capital Corp., a broker-dealer holding company. Mr. Schorsch is the executive chairman of RCS Capital, or RCAP.
The investigation comes days after another part of Mr. Schorsch’s REIT empire, the large traded REIT American Realty Capital Properties Inc., revealed a $23 million accounting error over the first six months of this year that was intentionally uncorrected. The Securities and Exchange Commission and FBI have begun investigations of ARCP, according to news reports.
Mr. Schorsch was the chief executive and chairman of ARCP until Oct. 1, when he relinquished the CEO title. He remains chairman.
Mr. Galvin’s office specifically is looking at what information was given to investors who bought the REITs and what investors were told about accounting at the REITs, Mr. McNiff said.
He gave no further details.
When asked to comment, RCAP spokesman Andrew Backman said he didn’t know about the Massachusetts investigation.
Meanwhile, another part of Mr. Schorsch’s empire, American Realty Capital, or ARC, on Friday sought to distance itself from ARCP. Mr. Schorsch is the CEO and chairman of ARC, a leading REIT sponsor he launched in 2007.
Several ARC nontraded REITs on Friday afternoon updated their filings with the Securities and Exchange Commission, stressing that they are separate from ARCP.
According to a supplement to the prospectus filed by American Realty Capital Global Trust II Inc., since ARCP’s announcement of its accounting error, “our sponsor and our dealer manager have engaged in continuous dialogue with soliciting dealers through which our offering is distributed to clarify that ARCP is a separate publicly listed company and is not affiliated with us, and we and ARCP have independent accounting teams and no overlapping accounting and control systems.”
The SEC filings by the ARC REITs this afternoon echo a statement on Wednesday from RCAP. The wholesaling and retailing broker-dealer issued a press release saying it is a separate and independent company from ARCP.
“Our sponsor and dealer manager believe that the independent-broker-dealer community remains supportive of direct-investment products sponsored by our sponsor, including our offering, and are providing soliciting dealers with requested information in order to maintain distribution relationships,” according to the ARC Global Trust II filing.
After ARCP disclosed the accounting mistake Oct. 29, chief financial officer Brian Block resigned. Mr. Block is a partner at ARC and had held senior management positions at other companies controlled by Mr. Schorsch. For example, he was CFO of RCAP, the broker-dealer, from February 2013 until December 2013, according to SEC filings.
Mr. Block “is one of the non-controlling owners of the parent of our sponsor, but does not have a role in the management of our sponsor’s or our business,” according to the ARC Global Trust II supplement. “We and ARCP have independent accounting teams, as well as separate and unique accounting systems, and no shared accounting resources.”